UPDATE 1-Morgan Stanley to improve performance quickly - analyst

July 31 (Reuters) - Morgan Stanley's (MS.N: Cotización) poor showing in
the first half of 2009 is no permanent impairment and the
investment bank, which last week posted a third straight
quarterly loss, will be able to narrow the gap in performance
relatively quickly, a Citigroup analyst said after meeting with
a top official of the company.

Citigroup analyst Keith Horowitz, who met with Morgan
Stanley Chief Financial Officer Colm Kelleher earlier this
week, cited the CFO as saying that the company is tackling
"head-on" its recent underperformance in its fixed income,
currencies and commodities (FICC) business.

Morgan Stanley's second-quarter fixed-income results of
$973 million, which had a gain of 44 percent compared with a
year ago, were dragged down by a $1.3 billion loss related to
improving spreads on its own credit.

Those results were dwarfed by the $6.8 billion reported by
chief rival Goldman Sachs Group Inc (GS.N: Cotización), almost triple what
it was a year earlier.

But Morgan Stanley is executing a clear plan to close the
gap in its FICC performance with fresh management, over 200
recent hires, commitment to boost capital allocated to agency
flow business in liquid products, and broadening its focus on
wider set of clients, Horowitz said.

Morgan Stanley's Kelleher expects the venerable institution
will begin to regain the market share it lost in the coming
quarters, given its reputation and relationships, Horowitz
added.

Kelleher maintained his "constructive" view on the market,
citing recent signs of stabilization, including improvements in
secured and unsecured funding and declining use of the U.S.
Federal Reserve liquidity programs, Horowitz said.

Kelleher, however, views potential new regulation -- which
includes potential mandatory listing of over-the-counter
derivatives and institution of a central counterparty, as well
as possible commodities trading position limits -- as among the
biggest risks facing the industry, Horowitz said.

In addition, July trends were slower for the company
compared with that of the second quarter, but was still like a
"normal July," according to Kelleher. Horowitz maintained his
"hold" rating and price target of $30 on the stock.

Shares of Morgan Stanley closed at $28.36 Thursday on the
New York Stock Exchange.
(Reporting by Tenzin Pema in Bangalore; Editing by Jarshad
Kakkrakandy)